Today's Blog Post is Written By Financial Coach, Tonia Peasley
Where did all my money go? This is a saying I hear often when I sit down with clients to work on spending plans. A great way to discover where all that hard-earned cash went is to use tools that are available for tracking your spending. One of the tools I have found useful is the end of the year spending re-caps that are sent by credit card companies.
I know a lot of us now use credit cards for most of our day to day spending. Credit cards get a bad rap from most budgeting guru’s and the ease of using them can get us into trouble sometimes. Let’s be honest, for the most part though, credit cards are a way of life and using them to pay for clothing, buying groceries, filling the car with gas and several other necessities is just something we have to do. Learning to use credit cards cautiously and using the tools that go along with them, is something you should dedicate a little time to use effectively.
- Determine if your categories are set up to work for you. I know many of us use our CC to pay for our utilities, insurance, and household expenses. Take a few minutes to review your categories to make sure you have them set up to your liking. A spending plan that is not set up for you specifically won’t work. You’ll never take the time to track the items going into the buckets if you have them labeled obscurely with things like “household expenses.” Take the time to make labels that work for you, for example, insurance, utilities, home repairs, clothing, shoes, food from the grocery, eating out, etc. You will need to take a little time at the beginning of the year labeling but from there on out, the times you use the Credit Card at those same stores, your spending at those places will be tracked into the categories you took time to set up.
- If you have a spending summary that assigns a percentage to each category of the overall spending amount, evaluate this percentage and determine if is in line with your goals. For example, housing should not account for more than 25-35% of your spending. This includes rent or mortgage payments, property taxes, HOA dues, and home maintenance costs. This category most likely will be the biggest. I’m sure you are not paying your rent or mortgage on your CC, I would recommend “not” doing that. You’ll need to determine what you are spending on your CC in that category and add it to the amount you are paying separately from your other accounts. I’ll be covering categories and going more in depth about the percentages assigned in my next blog post, so stay tuned.
- Using a Spending Plan and comparing it to your Annual Spending Summary for your Credit Card, can be your best tool to helping you reach your spending goals. Pit your spending against your goals and values. Housing, Auto and Food should be top categories for spending. If Clothing ranks up there, you might need to take a hard-look at this category and determine how to cut back. Determine where you’re spending the most money and figure out how much you would save if you cut back.
- Determine where you need to change and get to work. Print out the year end Summary and then use it to compare to next year. I find that posting the Summary for you to see daily as a visual goes a long way in helping you stay on track. Next year, print out the new Summary and compare it to last years. If you focused on making a change, I guarantee you will see results.
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